Social careSep 10 2021

Social care cap lifts IHT conversation barrier

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Social care cap lifts IHT conversation barrier
ByRuby Hinchliffe

What can make up the asset floor of £100,000 depends on where a person is receiving care.

The government's means test will count financial assets owned by those receiving care in their own home - i.e. savings and investments.

But for those who wish to receive care in a care home, their assets in the means test will also include the value of their home, and any second homes they have.

Toreston Bell, chief executive at think tank Resolution Foundation, told FTAdviser: "This could create a strong incentive for people to own their home and not hold lots of financial assets if they will need domiciliary care."

Conversely, it could also discourage more people from using care homes. Though as Bell acknowledged, many families already deem care homes a last resort.

"It does create something of a disincentive to go into residential care homes," he said.

A potential loophole Bell identified was that people could start alienating some of their assets ahead of needing them, such as giving money to their kids early.

"This puts a huge emphasis on IHT planning," said Bell, who added advisers would see an uptick in requests around IHT following the social care policy announcement.

It will also see local authorities engaging directly with advisers' clients, due to the fact the policy does not, in reality, cap spend, according to Bell.

"The only thing which has changed is the thresholds, so more assets are being protected. If you choose more care than the local authority thinks is necessary, then none of that will count to the £86,000."

Mike Stimpson, a partner at Saltus, said people who go into care "will be able to pass on more of their wealth to family" as a result of Johnson's reforms.

He continued: "[This will] pave the way for the government to amend IHT rules to increase tax receipts to cover the deficit and therefore, put a spotlight on IHT planning."

More to come

Some industry experts are reluctant to celebrate the lifting of barriers for advisers around IHT planning and social just yet.

Stephen Lowe, group communications director at retirement specialist Just, said a cap of £86,000 “is only a start” when considering the cap does, at least for now, exclude the ‘hotel’ costs such as accommodation and food.

“It could easily take perhaps three or four years and perhaps £200,000 to £400,000 of associated spending to reach the cap,” he explained.

For that reason, Lowe said “financial planning to avoid catastrophic loss of assets will continue to be a valuable service provided by financial advisers”.